Bitcoin pulled back on Monday after China’s decision to halt a key cyber currency fundraising mechanism that had recently been gaining in popularity.

The currency declined 6.4 per cent in the European morning to $4,312, Reuters data show. It had climbed as high as $4,980 over the weekend.

Monday’s fall came after China said that “initial coin offerings,” often abbreviated ICOs, were illegal and that any such activity should be halted immediately.

The People’s Bank of China issued a strongly-worded statement, indicating that ICOs are “essentially a form of non-approved illegal public financing behaviour and raises suspicions of illegal selling of notes and bills, illegal securities issuance, illegal deposit-taking, financial fraud, illegal direct marketing and related criminal activity”.

China is a large market for bitcoin trading and the central bank’s move may halt an important source of demand for the currency. ICOs are used by start-ups as an alternative fundraising mechanism. Investors pay in bitcoin or other cryptocurrencies and in turn receive coins that are theoretically used to buy that company’s services in the future.

Monday’s bitcoin move also highlights how bitcoin only sometimes acts like a haven during times of geopolitical strife. Gold and highly-rated government debt prices rose after North Korea detonated a nuclear weapon, yet bitcoin was left out of the rally.

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